After Jeb Bush won the governor's election against a candidate supported by trial attorneys' money, he has not been shy about signalling his intent to punish those who did not support him. Currently, here in Florida, we are in the throes of yet another "malpractice crisis" which symptoms are a rapid increase in medical malpractice insurance rates. Rate increases of 20-50%, depending on speciality, have been charged this year and, for those doctors who renew coverage next year, similar rate increases of 30% or so are predicted.

The excuse for this premium increase given by the insurance industry is the stock market collapse of the last two years. When income from investments was inflated, the insurers aggressively competed for business and discounted or held down their rates, yet were still very profitable. Now that their portfolios have evaporated, they allege that they must charge higher rates to provide for possible losses in lawsuits. However, what is not pointed out is the trend over the last several years for buy-outs and demutualizations of insurance companies, including some of the larger malpractice carriers, such as PPTF. The need for higher premiums to pay for debt incurred in these transactions, as well as to pay off the stockholders, investors and executives is not mentioned but is clearly a major, if not the major, driving force for increased premiums.

The solution which is currently proposed by organized medicine and the Governor is to "cap" so-called non-economic damages (such as pain and suffering, loss of consortium, etc.) to $250,000.00. A similar proposal for a nationwide cap has been introduced in Congress in the past. There is some impetus now for the President and the Republicans to revisit this proposal.

Non-economic damages have become the poster child for the malpractice system gone amuck. It is easy to hold up examples of excess to ridicule. Cases such as those where grandchildren sued for "pain and suffering" caused by the loss of their grandmother, whom they had not seen in years, and the patient who was awarded damages for loss of her clairvoyant abilities after a CT scan are clearly excessive. Similar absurd decisions can be found in all areas of tort law. To place a blanket cap on non-economic damages in malpractice trials is wrong-headed. It not affect malpractice rates significantly. Further, its basic effect is to protect insurance companies from loss, while not reducing malpractice or compensating injured patients.

First, as to its effect on malpractice rates. As I previously posted here, the introduction of caps was associated with, at most, a 10% decrease in premiums, as shown by studies done by the Urban Institute. This makes sense because 60% of the money goes to the system (lawyers, experts, trial costs, etc.), and only 40% to the patient. According to a study by the Office of Technology Assessment, about 25% of the awards were attributable to medical costs, leaving less than 15% attributable to other costs, which includes both economic (lost wages, etc.) and non-economic damages.

Proponents of the caps point to a California law, the Medical Injury Compensation Reform Act (MICRA), passed in 1976 after a malpractice insurance "crisis" in that state. In the last ten years, malpractice rates in California have risen at about 1/3 of the rate seen in some other states. However, studies have shown that passage of MICRA did not reduce insurance premiums for doctors. Malpractice insurance premiums did not drop until after the passage of Proposition 103 in 1988. Proposition 103 amended the California Insurance Code allowing members of the public to challenge rate increases and requiring the Department of Insurance to hold a hearing for any increase above 15 percent for commercial lines of insurance (7.5 percent for personal). In addition, Proposition 103 allows state regulators and the public to examine the companies' books to see if the rate hike is justified. Needless to say, Prop 103 was strongly opposed by the insurance industry which spent over $80 million in a losing effort to defeat it.

An example of the lack if effect of MICRA on malpractice rate hikes in seen in the recent application for a premium increase by SCPIE Holdings, the second largest physician insurer in California, covering 9100 MDs. In September, SCPIE filed an application for a 15.6% rate increase. This was the third rate hike in three years and the fifth in seven years. When the application was made, the Foundation for Taxpayer and Consumer Rights (FTCR) challenged the rate increase. When the hearing was granted, the company withdrew their application. In a press release, Harvey Rosenfield, President of FTCR said:

"Rather than open its books to independent scrutiny and justify its request for a double-digit rate hike, as it is required to do under Prop. 103, this insurance company apparently decided it didn't need a rate increase after all. This is just as we suspected. If other states had the kind of stringent rate regulation required by Prop. 103, there would be no medical malpractice 'crisis' in America today."

I expect a similar provision here in Florida, or a more aggressive Insurance Commissioner, would find that the current "crisis" is more manufactured than real.

Other proposed changes in the tort system, such as a fee schedule or limits on lawyers fees, structured settlements instead of lump sum payments, disclosure of collateral sources, and elimination of "joint and several" liability, would have definite positive effects, but are not the main thrust of the current proposals. In California's law, lawyers' fees are set at a decreasing proportion of the settlement amount. This eliminates windfall payments to the lawyers and delivers more of the proceeds to severely injured patients. These all make sense and would allow more effective compensation of injured persons. Major changes to the system so that faulty physicians are identified and either stripped of their license, restricted in their practices, or required to undergo re-training are equally important.